Although life insurance premiums are fixed and rebating is illegal in most states, there are ways to manage your premiums, the most obvious of which is not to buy more than you need. Since very few people are over insured, this essay will look at some more practical ways to keep life insurance premiums as low as possible.
To illustrate potential savings, let’s look at the premiums for a $1,000,000 of 20 year term coverage on a male age 35 with a top rated carrier. Please note that these are not necessarily the lowest premiums, but are presented to show the difference that the different underwriting classifications have on the premium.
This particular company has five standard rate classes plus another 10 rated classes, but we will only review the standard classes. The annual premium for a standard risk is $1,215, preferred is, $745, and ultra preferred, the very best class, is $585. The two smoker classes are standard and preferred, which have annual premiums of $2,965 and $2,295, respectively. While it’s not unusual for half of a company’s applicants to receive the preferred classification, usually less than 15% will qualify for the top class.
The premiums above illustrate very clearly that the two best ways to lower your premium are 1) don’t smoke, and 2) get healthy. In our example, a standard risk who quits smoking could save $1,750/year, and a preferred risk could save $1,500. In addition to that, the amount saved by not purchasing cigarettes would in all likelihood exceed the premium. Most carriers require you to be tobacco free for one year, although many require two years.
Movement between the non-smoking classifications is a bit more complicated, as it is based in part on your health history, some of which can’t be changed. But there are some controllable factors; weight, blood pressure, and cholesterol levels can all be influenced, to varying degrees, by diet and exercise. Your driving record, another controllable factor, can also impact the classification you receive.
The frequency with which you pay your premium presents another potential way to save. In the example above, the annual premium for standard non-smoker is $1,215 while the semi-annual is $621.71. That represents a potential annual savings of $28.42. The quarterly and monthly premiums are $314.57 and 105.71, which represent potential annual savings of $43.28 and $53.52, respectively.
Avocations can also serve to increase the premium. Most carriers will add a surcharge if you participate in any behavior they deem risky, such as mountain climbing, scuba diving, racing (auto, motorcycle or speedboat), piloting small aircraft, etc.
Most companies reduce the cost per thousand at various amounts, typically $250,000, $500,000 and $1,000,000, though some also include other amounts. Buying just less than a “breakpoint” can actually result in a higher premium. In the example above, the preferred non-smoker premium (PNS) is $745, but the PNS premium for $975,000 is $758.
While insurance companies don’t offer coupons or put their products on sale, premium reduction strategies are available to the savvy consumer. If you think you’re paying too much for life insurance, please call or email.